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Q&A: Mike DeNoma, GLH Hotels

Mike DeNoma is chief executive of GLH Hotels, which owns the Guoman and Thistle Hotels brands, and is launching new brands such as Every, Amba and Clermont in London and worldwide

You are in the process of rebranding your hotels from two brands to four. Isn’t branding part of the problem rather than the solution?That’s a brilliant criticism apart from the results. Look at Amba [Charing Cross] going from number 250 or number four on Trip Advisor. Where’s Marriott’s new brand in London ranked, or Shangri-La? If it’s such a beleaguered offer, how can it jump to the top four in the most competitive market in the world? Every hotel [Piccadilly] is already in the top 50. Look at results: guests’ experience, guest reviews and the speed of the wifi. It’s easy to say brand is the problem – talk to the customer.

The industry press just talks to each other. It’s a giant confab of self-congratulatory compliments about days that have long ago past. The industry prints everything that everyone puts out. There’s very little circumspection on it. People who have been disadvantaged in this whole play are the guests, the employees and the hotel owners.

And this is based on research?Yes, but it’s more than that. We looked at every category – upscale, middle and the bottom. We looked for unmet needs and positioning. On a global basis there are no brands that really stand for anything that’s distinctive on the positive side. They all stand for everything but when you stand for everything you stand for nothing so we thought that was unusual.

Second, in many categories you look for expected benefits, five or six exciting benefits were basic – one of them was tech. So it would be exciting if they could get good wifi and tech – which was shocking if you think about it.

We need to find the customer needs and fulfil them. So we have a different management model. We are putting management back into the hotels. Hotels have been deskilled in the last 20 or 30 years, because if you’re a large brand and you are going to charge a large fee, you have to justify it and one of the ways is taking the management out and doing it centrally. But that anaesthetised the hotels, and there is some great talent in there but it’s under-leveraged.

So there’s been a lack of innovation in the hotel industry?How can any industry be cutting edge if you don’t have free wifi hotel in every hotel in the world? It’s a joke - you don’t charge for air. One example of our management innovation is the research we did. Why don’t hotel companies design brands for global roll-out? They design them for national roll-out and then they never move anywhere.

Our names and propositions – Every, Amba, Clermont - those brand names and propositions are as acceptable to a Chinese consumer as to a German or South Asian or American. We also did conjoin analysis on the hotel rooms to compare all the different aspects of the room – size, shape and so on to trade off. How can this not be a part and parcel of the business model. A third example is labour productivity. How can you have an industry where you do not cross-train your staff in the hotels? No one multi-skills the staff. The labour demand curve is highly predictive, labour efficiency isn’t managed anywhere near to other industries. It’s a great misuse of human talent in that you don’t train or multi-skill the staff. The reason is heads of department aren’t multi-skilled themselves so they don’t train their staff because they feel their own jobs would be threatened.

It’s paternalistic, it’s not a meritocracy, it’s a good old boy network of time and tenure. Coming from a banking background, managing a hotel with the digital channels is more like foreign exchange futures than it is anything else – it’s highly complex, with price points being updated a thousand times a day.

So these are living laboratories and you could get the best graduates coming into hotels because they would develop at an extraordinarily rapid rate because they have an immediate feedback loop into the profit and loss, which most big data sets don’t.

The metabolic rate of this industry is glacial. And why is that? Well to get a property approved and built takes years and years. But the digital world is hugely rapid, so this industry is caught at a crossroads and that’s what’s put it under too much pressure.

But for a global roll-out your portfolio is a strange one – mostly UK and a few hotels in Malaysia.I call it the hermit crab portfolio. Thistle never built a new hotel in its history, isn’t that extraordinary? They are all just others’ crab shells. The problem with Thistle is that the majority of the Thistle Hotels outside London are really old hotels. One person referred to it as “the undemolished estate”. They are a four-star promise with three-star positioning and delivery. It’s three-star revpar with a four-star cost base - it’s untenable. Thistle is the Little Chef of the hotel industry.

Yet we have extraordinary properties in London. The majority of them are trophy properties - both Guomans and Thistles, but they are under-performing. We are taking the opportunity they present. The world hotel market has very major gaps in every category both in terms of customer service and customer proposition and we’re going to use these London hotels to launch these brands. London is the most difficult market to get into in the world – it took Shangri-La 30 years, for example.

The interesting thing is that the Amba hotel we just launched was number 250 on Trip Advisor, we refurbished it, and it is now number 4. It’s unprecedented in the industry to get that sort of result. People don’t know how big we are in London. We have an exceptional position in probably the world’s best hotel market.

We’ve done unprecedented research, and we’re at a digital inflection point and we’re also where consumers have significantly different expectations of the hotel experience than the big brands are currently willing to offer. It’s an easy play [to expand]. If we had 5,000 rooms in Cleveland or Hamburg maybe it would not be as exciting, but 5,000 rooms in London is a leveragable asset.

Also, lastly, the room nights in London are very international – 80 per cent of the room nights are international guests – far more than New York or Paris, so you can project the brand in that way.

And you’ve made the decision to get rid of meeting rooms in the Every Hotels properties.Most offices have better meeting rooms than most hotels today. It’s a bygone age where people went to these meeting rooms. If it’s a gateway city where people go to large conferencing facilities, then that’s different, but even in London the occupancy rate is probably 50 per cent and outside London it’s 30 per cent, and that’s extremely expensive for an hotelier. If you’re a big brand and you’ve made everyone build those meeting rooms, it’s pretty hard to backtrack from there.

For probably 99 per cent of the cities of the world, they don’t need more hotels with more restaurants and meeting rooms. They just need the beds – a great room in a great location. The rest are amenities.

So when will we see the new brands?We will have three Clermonts in 2016: Royal Horseguards in London, a hotel in the talllest tower in Singapore and another one in a brand new build in Kuala Lumpur. The UK property is delayed because of planning, it’s an English Heritage registered building so it takes a long time.

It’s a great industry at a great point at time. The pressure from the OTAs is causing everyone to look at the entire model. The OTAs are taking another 25 per cent of the revenue, which is extraordinary for the amount of capital they have at risk.

Isn’t that more of a problem for a small brand like GLH than a big one?No, I don’t think so. Unfortunately and unintentionally the big brands can be complicit, because they get commissions on commission. In most industries you can’t do that. If I’m a big brand, I get my fees on top of room revenue that’s booked through an OTA.

Effectively hotel owners are paying double commission, which is another challenge the industry has. There are very few industries where that would happen and it puts a lot of pressure on owners who have the capital at risk. There’s probably two trillion dollars worth of hotel assets and OTAs have less than $100 billion - maybe less, only tens of billions - and the big brands have a lot less than that, so it’s kind of odd that two of the players with the least amount of capital are getting the biggest return on equity.

You have been keen to emphasise the free wifi in the properties?Yes, and it benefits everyone. It’s a clever move for us and why we put in those big fibre optic spines in the hotels. Once you’ve wifi-ed the envelope of the hotel you can multi-skill everyone and dramatically change the way the labour model works. Once you have wifi, they all have iPads on streaming. If you’re a new employee and you’re helping with breakfast, you can look at your training while you’re doing it. You can change the productivity of the hotel. If you don’t have it you’re down to walkie talkies.